Opinion & Commentary
Minimum wage is a two-edged sword
Apprentices and other low-skilled workers will face an increased risk of unemployment if unions secure a raft of new pay increases in this year’s minimum wage review.
The Australian Council of Trade Unions (ACTU) will apply to Fair Work Australia to raise pay rates for adult apprentices to the industry minimum and double the hourly rate of some adults to $15.73. The ACTU is also pushing to increase junior apprentice rates from $6.32 up to $10.83. The Shop, Distributive and Allied Employees Association is separately applying for the adult wage to be paid to 20-year-olds rather than starting at 21.
While the intentions of unions and their supporters are laudable, the effect of hiking minimum wages is almost entirely the opposite. The effect of boosting minimum wages is not to increase the lot of the most vulnerable, as unions claim, but to harm those with low skills. As Milton Friedman said, ‘The minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills’.
Our neighbour across the Tasman recently experienced the effects of excessive minimum wage hikes. Australians should learn from the experience.
In 2008, the New Zealand Parliament abolished the youth minimum wage and replaced it with the adult minimum wage. Employers previously hiring teenagers had to pay them adult wages.
The results were telling. New Zealand’s Department of Labour published a report in 2010 finding that the employment of 16- and 17-year-olds fell from 61,400 in 2007 to 39,500 in 2010. Even taking into account the effect of the global financial crisis, the department found that the minimum wage hike had accounted for up to 40% of the drop in employment.
Up to 10,000 young workers lost their jobs as a direct result of government policy. By April 2010, youth unemployment had reached 26.5%. The story is worse still for the young Maori, where unemployment had escalated to 38.7%: almost two out of every five young Maori is unemployed.
Raising the minimum wage in New Zealand priced many young workers out of the market and forced them to compete with better skilled, more experienced adults. Employers, mainly small businesses operating at the margin, simply decided that hiring young, inexperienced workers was no longer worth the extra risk and training.
Like New Zealand’s young workers, Australia’s apprentices are also highly vulnerable to market fluctuations. Many of them are in their first job, have fewer skills, and therefore have less to offer prospective employers. They rely on a relatively lower wage to compete.
The Minimum Wage Panel at Fair Work Australia should think twice before raising minimum wages.
Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.
